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Originally Posted by macker
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I agree with Slava in a lot of ways and the big reason why is that methods of quantifying risk seem to ignore the fact that the Efficient Market Hypothesis is incorrect. Behavioral finance often misprices securities, and that mispricing has a way of throwing off Beta and 'Expected Return' in such ways as to make them unreliable in a lot of cases.
Some examples in history go back to the financial crisis in 2008-2009, prices on a lot of things were they way they were because of money moving around for reasons other than the underlying business fundamentals of particular stocks. There were quite a few stocks with higher liquidation value than what the stock price was indicating. If you took a value investor approach some of these unloved securities were mispriced and worth buying. If you took a MPT view, these were stocks that were riskier than the market because beta would have been higher than 1 (As their stocks would have declined greater than the overall market). But in reality how risky would investments like these be if their liquid assets (Net of liabilities of course) were greater than the price you were paying for them?